In this post, we'll look at the tax advantages accessible to a HUF, how it may open a bank account and obtain a PAN card.
Hindu Undivided Family (‘HUF’) is treated as a ‘person’ under section 2(31) of the Income-tax Act, 1961. HUF is a separate entity for the purpose of assessment under the Act. Such an entity cannot be created under a contract, it can only be created in a Hindu Family.
A PAN Card is a very important document for Hindu Undivided Families (ḪUFs), second only to the HUF Deed. It establishes the HUF as a legal financial entity with the ability to do things like open bank accounts, purchase real estate and make investments.
Only Hindu, as per the law can create a HUF, the term hindu includes even Sikhs, Jains and Buddhist families.
HUF Deed Creation
A HUF must first be formed by establishing a corpus. Any assets left to a will or ancestral property, as well as any donations from a relative, might be utilised to establish a corpus. Once the corpus has been established, the HUF deed may be prepared.
The deed must be written on stamp paper and signed by the Karta, coparceners, and members. The deed should also specify the address, bank information, and source of income from which the corpus will be funded. The deed must include a declaration (by the Karta) specifying all coparceners and members authorised to conduct financial operations.
Who Can be Included in an Huf Pan Card?
- An HUF can be created by a joint family of, say, for instance, a father and two sons, all married and doing business together. Anyone by birth is also included in the family.
- A husband and wife can also form an HUF for tax benefits and to share the income earned from collective and ancestral properties. The eldest male member becomes the Karta (or the head) and has the authority to operate the accounts and other assets under the HUF.
The members of the family that can be included in Huf Pan Card are:
- Sons and daughters (married and unmarried)
- Husbands and wives
- Grandsons and great-grandsons
Both sons and daughters are termed coparceners (as per amendments to the Hindu Succession Act, all daughters are now also classified as coparceners) and have the right to become the next Karta, in the event of the death of the present one. Anyone by birth or marriage will become a member of the HUF. However, only coparceners can succeed the Karta. Members do not have this privilege.
Tax Benefits Available to HUFs
An HUF is taxed separately from its members and coparceners since it is a distinct entity. As a result, the deductions and exemptions available under Section 80 can be claimed by the HUF as well, minimising individual tax burden. Similarly, refunds on loans, rent, and other expenditures might be requested.
This is why most chartered accountants recommend that all Hindu married couples join a HUF. In general, HUFs pay 30% less tax than other entities.
How to Get a Huf Pan Card?
An HUF is a distinct legal entity, similar to a corporation or partnership. As a result, it can apply for a PAN card in its own name. Without a PAN card, a HUF won’t be unable to perform any of the financial functions a HUF is set up to do.
Documents Required for HUF PAN Card Application
- The name of the HUF (or the name of the Karta, followed by ‘HUF’)
- HUF’s address and residence proof
- Copy of Karta’s Aadhaar card;
- Copy of Karta’s Voter ID;
- Copy of Karta’s driver’s license or passport;
- Copy of Karta’s Ration card;
- Source of income to the corpus
- Names, father’s name and addresses of all HUF coparceners, with affidavit from the Karta
- Signature of the Karta on duly filled Form 49A.
If all of the documentations are in order, the PAN card should follow within 21 days after application submission. You can check its status here.
Checklist to Open an HUF Bank Account
The HUF can immediately establish a bank account once the PAN card arrives. The following documents/information are required:
- The name of the HUF
- Photograph of the Karta
- Proof of address and identity of the Karta
- PAN card and PAN number of the HUF
- The list of coparceners and members
- A declaration by the Karta as to which members and coparceners are authorised to operate the bank account
- Any further details as demanded by the bank, at the time of the opening of the bank account
The bank account will be in the names of the HUF and the Karta, and it will be accessible only to those authorised by the Karta. Do note that an Huf Pan Card bank account is a current account, which may incur higher bank fees.